Fibrogen, Inc. v. Hangzhou Andao Pharmaceutical LTD.

Background

FibroGen alleged that former employees Dr. Dong Liu and Dr. Shaojiang Deng used FibroGen’s confidential information concerning four HIF-PHI compounds in patents and patent applications filed by Kind Pharmaceuticals LLC. Liu founded Kind while employed by FibroGen and later left to work for Kind. Deng remained at FibroGen until 2019 and then joined Kind. FibroGen also sued Hangzhou Andao Pharmaceutical Ltd.

FibroGen alleged eight causes of action: correction of inventorship, a declaration of patent ownership, breach of contract and breach of the implied covenant of good faith and fair dealing against Liu, breach of contract and breach of the implied covenant against Deng, and inducing breaches of Liu’s and Deng’s confidentiality agreements. The defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plausibly state a claim.

Assignment provision

The employees’ confidentiality agreements required assignment of inventions meeting specified conditions, including inventions related to FibroGen’s actual or anticipated research or development. The court held that the first part of this assignment provision was not limited to inventions conceived during employment or to inventions based on confidential information. Because it could require assignment of post-employment inventions, the court found that it violated California Business and Professions Code section 16600 and was void as an unlawful noncompetition provision. The court did not decide whether the agreement’s third subclause also violated section 16600.

Inventorship and patent ownership claims

For Count I, FibroGen sought to remove Liu as an inventor and add Deng and another FibroGen scientist, Wen-Bin Ho, to the ’478 patent. The court held that FibroGen did not plausibly allege that Liu failed to contribute to the inventions claimed in the patent. It also held that FibroGen did not adequately allege collaboration or other joint behavior between Deng and Ho and the named inventors. The court therefore dismissed Count I with leave to amend.

For Count II, FibroGen sought a declaration that it owned the Kind patents. FibroGen relied on the assignment provision as the written instrument transferring ownership. Because the court found that provision invalid and FibroGen identified no other written transfer instrument, it dismissed Count II without leave to amend.

Contract and implied-covenant claims

As to Liu, FibroGen alleged that he breached the agreements by founding Kind before leaving FibroGen, failing to report his outside employment to FibroGen’s board, and failing to return or protect confidential information. The court rejected the theory based merely on founding a potentially competing company because the complaint did not allege that Liu or the Kind entities engaged in competitive activity while Liu was still employed. The court also found insufficient factual allegations that Liu accessed or received confidential information about the four compounds.

The court did, however, deny the motion to dismiss the breach-of-contract claim based on Liu’s alleged failure to provide the board with a detailed statement of the outside employment in which he sought to engage. The court read the agreement as plausibly requiring that disclosure during employment.

As to Deng, the court found that FibroGen’s allegations that he conveyed confidential information to Liu or Kind were conclusory. The complaint did not allege facts showing that Deng communicated, downloaded, removed, or transferred the information in an unauthorized manner.

The court also dismissed the implied-covenant claims against Liu and Deng with leave to amend because they relied on the same alleged conduct as the breach-of-contract claims and did not allege an additional contractual wrong.

Inducing-breach claims

The court dismissed Counts VII and VIII, which alleged that Kind and Liu induced breaches of the confidentiality agreements. The court found that the complaint did not allege what conduct Kind took to induce a breach. In its conclusion, the court stated that the remaining counts could be amended based on allegations that did not involve the invalid assignment provision.

Disposition

The court dismissed Count I with leave to amend and Count II without leave to amend. It denied the motion to dismiss the contract claim based on Liu’s alleged failure to inform FibroGen’s board about his outside employment. It dismissed the remaining counts with leave to amend to the extent they were based on allegations not involving the invalid assignment provision. FibroGen’s amended complaint was due April 19, 2024, and no additional parties or claims could be added without permission or the defendants’ agreement.

The court terminated the defendants’ sanctions motion, subject to resubmission within seven days. It denied as moot the defendants’ administrative motion for leave to file a statement of recent decision and statutory authority.